It is not just entrepreneurs who pivot and change their business model or strategy. Investors too do the same. From investing on their own, they are now looking at co-investing in ventures with like-minded investors.
The change has come about because venture capital firms realise that as their portfolio grows, they will have to deal with many more entrepreneurs and start-ups than they did earlier. With one or two more investors who have also placed their bets on the venture, it will be easier for them to spread the risk, and deal with problems and solve them together.
Take seed- and early-stage venture capital firm Ventureast for instance. With $83 million raised out of a planned $150-million fund, Ventureast is now looking at co-investing in start-ups with investors who share the same wavelength. “The industry has matured, we have matured. In the last five years, we have had enough VCs who are there to co-invest with you,” says Sarath Naru, Managing Partner, Ventureast.
He points out that it has become difficult to handle the workload of dealing with the challenges facing ventures and entrepreneurs single-handedly.
Therefore, it is good to have another investor who is on the same wavelength and able to solve problems jointly. The entrepreneur too gets another point of view and does not just have to listen to only one investor’s opinion.
Credible introduction
“We would like to take the lead role,” says Sarath and adds that Ventureast will help the entrepreneur find other co-investors.
“Of course, you will have to tell your story, but we will make a credible introduction. Why don’t you meet this VC here, the other VC there… so, we are taking a leadership role in that sense,” he adds.
Ventureast will also open an office in Bengaluru to tap into the large number of venture capital firms that have offices there.
In fact, in one of the investments from the new and sixth fund – Ventureast Proactive Fund II – it brought in angel investors into a start-up, then a VC firm after which it invested in two rounds. In that case, Ventureast, according to Sarath, believed in the venture, the technology and the entrepreneur. It needed co-investors because the closing of its fund got delayed. “You have to take an active approach and persuade the rest of the guys,” says Sarath.
With the new fund, Ventureast also plans to invest from the seed stage to Series A, and maybe a little bit in Series B and Series C, which means it will write cheques from $200,000-250,000 to $5 million.
Sarath admits that it is a large space and that is also why co-investing makes sense. When it was investing by itself, Ventureast would look at a significant minority stake, with the sweet spot being upwards of 25 per cent. Now, it will look at hitting that number along with its co-investors. In subsequent rounds, the combined stake of the investors will be over 50 per cent.
Target companies
Ventureast will look at companies in SME services, digital health, fintech, Internet of Things and agri-tech.
As far as possible it will look at ventures where technology is not just an enabler but a differentiator. He admits that technology cannot be a differentiator from day one. So, in the initial years, the execution capability of the team will be important.
“We will start finding niches where we can go and say technology can be truly a differentiator here,” adds Sarath.
There are promising start-ups in each of these spaces that Ventureast wants to invest in, according to him.